Protectionism is back and it looks like it’s here to stay. A confluence of geopolitical realignment, new technology and the urge to protect domestic industries has increased the appeal of looking inward. For investment promotion agencies (IPAs), this poses a major roadblock as they try to attract foreign capital to their economies.
The FDI Centre is a consultancy helping IPAs navigate this ecosystem by working with them to develop strategies that suit their strengths. Its other branch, Location Decisions, is a site selection consultancy that connects investors with sites to grow their businesses.
Conor Finnegan, a consultant at the FDI Centre, has had experience advising IPAs on how to target valuable sectors and helping investors find the right places for corporate expansion. He spoke with Investment Monitor to discuss how IPAs can attract capital amid the global rise of protectionism.
What are some IPA initiatives that stood out to you in 2024? Is there anything you have your eye on for 2025?
I think we are seeing a lot of talent-focused strategies. It is going to be the biggest asset, so looking at strategies that will get the right people in and the right skill.
Estonia’s residency programme is cool. It’s a platform that gets people past a lot of that red tape. It is all done and issued online, and they are using that to get a lot of very highly skilled people, especially in digital sectors. Estonia has been a leader in digital infrastructure leadership, and we have seen a lot of good strategies coming from them.
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By GlobalDataRegulatory sandboxes I think are something that is interesting. That is especially the case in emerging sectors, be it quantum or AI or semiconductors. Creating regulatory tools that allow businesses to test and to experiment with innovative product approaches. For example, the EU has got a blockchain regulatory sandbox, and that is something that we could see more use of this year, I imagine.
Looking at incentive packages is something else as well. We see this on the site selection side with some of the big investments. Oftentimes, especially in the EU, the level of financial aid that they can give is often not even enough to really sway a business decision. So something that we would recommend is tailoring incentive packages. To get really specific and focus on adding real value to investors looking at what they need.
While there is a global decline in FDI, some industries are booming. The production of semiconductors, for one, has exploded. However, this sector is energy and resource intensive. What other industries are set to grow in 2025 that IPAs could tap into instead?
We are seeing semiconductor companies investing five, ten billion dollars in one project. However, as you said, these are really resource heavy and the reality is that firstly, a lot of countries can’t offer the kind of financial aid that is needed for those. Secondly, even if they can, to actually be able to satisfy the workforce requirement or the energy requirement, for example, is really, really difficult. We recommend target group selection. It is about going below these kinds of broad trends. Not just saying, we are going to focus on AI and then not be specific.
Firstly, to investors that doesn’t show them that you understand their business and that is something they really look out for. I have spoken to companies or industry associations in renewable energy that have gone with their countries, and they get there and talk to investors, and within a couple of minutes they realise, we are not prepared for this. We can’t speak to these guys on a technical level because we have come in too broad.
So, when we talk about target groups, we talk about very specific groups of similar companies that do similar things. We are not saying, just wind energy equipment manufacturing, for example, it would be much deeper than that. You can break that down to the smallest level.
I think we would advise IPAs to look at the supply chain of these exploding sectors. Take solar power equipment. China has massive control over the production of solar panels, but a lot of countries could take part in the assembly process. Importing the equipment and assembling it there, that is pretty low energy and doesn’t require skilled labour, so that could be an option. All of these industries have a pretty broad supply chain, and it is about positioning yourself in the right place in that supply chain. Our advice to IPAs would be to analyse where your strengths lie and then see where you can fit them in.
If you come and say, we want the next $5bn semiconductor plant, that is all well and good, but even in the unlikely event that you win it, can you put thousands of employees there? Can you provide sufficient energy? It is important for IPAs to get down to the nitty gritty. Where are our strengths? Where do they lie? And let’s play to them.
There seem to be some cautionary tales when it comes to being unable to deliver on big investment announcements.
You see it in Germany with Intel. This plant has been in the works for so long, but they had difficulty delivering on the incentives that they said they were going to and then actually getting people working there.
I think there is a lot of fanfare around winning the project, the company announcement and the ribbon cutting. I suppose this is the bread and butter for IPAs, it is what looks good on the website.
However, you really need to demonstrate seriousness. IPAs are inevitably always selling, and I suppose that is their job, to sell the region, but investors appreciate honest and factual information too. When you are visiting a site, connecting the investors with the right people, such as someone from the ecosystem for the specific industry being explored or people in the workforce, that can actually show you a pathway to say, securing talent that you need. That kind of thing is really important to investors.
What do you make of the rise of FDI screenings, especially in countries that have been traditionally more open to investment?
I suppose it is one of the clearest indicators of how far we are moving towards protectionism. It is kind of hard to know what to think about it right now. The European Commission, for example, has advised outbound investment screening on quantum, AI and semiconductors.
We are seeing it a lot in regional blocs as they try to protect industries and promote investments within those blocs. I suppose for IPAs, their role can be as facilitators, helping investors understand and navigate these screening processes. Where these screenings exist, that is a place that an IPA can step in and promote transparency.
How can IPAs navigate expectations from different stakeholders when it comes to FDI?
Transparency is absolutely crucial and that comes on both sides when you are dealing with government officials and dealing with investors. That’s where it is really important for IPAs to play to their strengths. It is why we focus on this target group analysis and really being in a sector where you are comfortable and where you know the playing field and can provide value, because focusing on industries where you can’t really provide that value inevitably leads to itching and selling and not being transparent. In the long run, if you can’t satisfy investor requirements, you can still win investments – and they can still fall apart. That is what IPAs need to avoid.
In the facilitation phase, it is important that you allocate resources properly. For example, that you know you have got really good lead validation, so that you know what leads you have a real opportunity with and can push your resources towards them. That is because maybe something sounds good, but a realistic assessment says this isn’t something where we can provide value.
It is about being on top of the brief really. Being able to brief investors or government officials and show them realistic expectations. Everybody wants the next announcement, but at the end of the day, it relies on a lot of things. These investments actually being facilitated, that is the key thing that also needs to be factored into KPIs.
What do you make of the rise of digital FDI?
Digital FDI is a real hot topic and is quite hard to define. The World Economic Forum offers a definition with three pillars: digital activities that could be things like ride-sharing apps, adoption of digital services by companies (telemedicine, for example) and then enabling investment in digital infrastructure. For developing countries, there are a lot of opportunities in digital infrastructure where they can be overhauling what they have got currently. We see that a lot in more developing economies.
However, it is also about talent. A lot of central Asian countries are really focusing on digital adoption and digital activities, but you need to have the right talent there. You have a lot of countries with a pretty good workforce in software development and they can focus on that.
We have done projects with regions that want digital FDI, and it is a broad topic, so it is about saying, it sounds shiny, but where does it work for you? You might want the next software development company, but have you got software developers that can work there?
We also see a lot of business process outsourcing, which can come under digital FDI. That is where companies will outsource their software development or other elements of their business to low-cost markets adjacent to bigger markets.
Again, it is really about asking, where does this work for us? Like, do we need our digital infrastructure overhauled? Or do we have a strong workforce of software developers that we can focus there?
So would you say that individualisation, whether as a part of an IPA’s approach to attracting an investor or in the way you develop your strategy, is quite important amid rising protectionism?
That is where I think, the more sophisticated the IPA, the more targeted value propositions you see. If you go onto an IPA website and it says: “Our target industries are tourism, renewable energy and digital,” you have to ask, what does that specifically mean? That is our approach. We want to get down to the nitty gritty for a place and say, what do you have that nobody has? What can you offer that other places can’t offer?
There is a large amount of resources that, frankly, are wasted chasing broad, generalised industries and not actually showing or demonstrating seriousness to an investor. Ultimately, that is what they want.
